The Federal Trade Commission furnishes the answers to some questions that could certainly help car buyers with questionable credit that currently have an auto loan
Having a vehicle repossessed is never a good thing. In fact, having one appear on a credit is one of the worst things that can happen to any borrower. But it is especially bad if the auto loan in question belongs to a consumer with problem credit.
Here at Auto Credit Express we know why this is true because for more than twenty years we’ve been helping car buyers with bad credit searching for online car loans find those car dealers that can offer them their best opportunities for car loan approvals.
We have always been concerned about the fact that many credit-challenged borrowers are unaware of what would happen if their car is repossessed.
So why do we feel this way?
We feel this way because higher-risk borrowers are more likely to have an auto loan end in repossession. According to Experian, consumers financing their vehicles with subprime auto loans are nearly twice as likely to have this occur.
So following up on a previous article, today we’ll pass along some additional information from the Federal Trade Commission (please keep in mind that we don’t presume to give anyone any specific legal advice) that touches on what consumers are likely to experience during the repossession process.
Selling the repossessed vehicle
Once your vehicle has been repossessed, your creditor may decide to either keep it as compensation for your debt or resell it in a public or private sale. In some states, your creditor must let you know what will happen to the car. For example, if the car will be sold at public auction, state law may require that the creditor tell you the time and place of the sale so that you can attend and participate in the bidding. If the vehicle will be sold privately, you may have a right to know the date of the sale.
In any of these circumstances, you may be entitled to “redeem” — or buy back — the vehicle by paying the full amount you owe (usually, that includes your past due payments and the entire remaining debt), in addition to the expenses connected with the repossession, like storage, preparation for sale, and attorney fees. Or you could try to buy back the vehicle by bidding on it at the repossession sale.
Some states have consumer protection laws that allow you to “reinstate” your loan. This means you can reclaim your car by paying the amount you are behind on your loan, together with your creditor’s repossession expenses. Of course, if you reclaim your car, your future payments must be made on time, and you must meet the terms of your reinstated contract to avoid another repossession.
Any resale of a repossessed vehicle must be conducted in a “commercially reasonable manner.” Your creditor doesn’t have to get the highest possible price for the vehicle — or even a good price. But a resale price that is below fair market value may indicate that the sale was not commercially reasonable. “Commercially reasonable” may depend on the standard sales practices in your area. A creditor’s failure to resell your car in a commercially reasonable manner may give you a claim against that creditor for damages or a defense against a deficiency judgment.
Paying the Deficiency
Any difference between what you owe on your contract (plus certain expenses) and what your creditor gets for reselling the vehicle is called a “deficiency.” For example, if you owe $10,000 on the car and your creditor sells it for $7,500, the deficiency is $2,500 plus any other fees you owe under the contract. Those might include fees related to the repossession and early termination of your lease or early payoff of your financing. In most states, your creditor is allowed to sue you for a deficiency judgment to collect the remaining amount owed as long as it followed the proper procedures for repossession and sale. Similarly, your creditor must pay you if there are surplus funds after the sale proceeds are applied to the outstanding contract obligation and related expenses, but this situation is less common.
You may have a legal defense against a deficiency judgment if, for example, your creditor breached the peace when seizing the vehicle, failed to sell the car in a commercially reasonable manner, or waited too long before suing you. An attorney will be able to tell you whether you have grounds to contest a deficiency judgment.
For More Information
To learn more about your rights and specific repossession requirements in your state, contact your state Attorney General (www.naag.org) or local consumer protection agency (www.consumeraction.gov).
The Bottom Line
It’s far easier to deal with payment issues before repossession rather than after it has taken place. Borrowers that think they might encounter problems making their car payments should contact the lender immediately. If the creditor agrees to a loan modification, be sure to get those terms in writing. That way there will be no confusion on either the borrower or the lender’s part.
Another tip: at Auto Credit Express we match people that have experienced difficulties with their auto credit with new car dealers that can offer them their best opportunities for approved car loans.
So if you’re ready to reestablish your car credit, you can begin now by filling out our online car loan application.